RSI INTERNATIONAL SYSTEMS INC. CONSOLIDATED FINANCIAL ...roomkeypms.com/.../2017/01/RSI_FS_Q4-2015-MNP.pdf · rsi international systems inc. consolidated financial statements

RSI INTERNATIONAL SYSTEMS INC.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015 AND 2014

(In Canadian Dollars)

Management’s Responsibility for Financial Reporting

Management is responsible for the preparation and presentation of the accompanying consolidated financialstatements, including responsibility for significant accounting judgments and estimates in accordance withInternational Financial Reporting Standards. This responsibility includes selecting appropriate accountingprinciples and methods, and making decisions affecting the measurement of transactions in which objectivejudgment is required.

In discharging its responsibilities for the integrity and fairness of the consolidated financial statements,management designs and maintains the necessary accounting systems and related internal controls to providereasonable assurance that transactions are authorized, assets are safeguarded and financial records are properlymaintained to provide reliable information for the preparation of consolidated financial statements.

The Board of Directors and Audit Committee are composed primarily of Directors who are neither managementnor employees of the Company. The Board is responsible for overseeing management in the performance of itsfinancial reporting responsibilities. The Board fulfils these responsibilities by reviewing the financialinformation prepared by management and discussing relevant matters with management and external auditors.The Audit Committee has the responsibility of meeting with management and external auditors to discuss theinternal controls over the financial reporting process, auditing matters and financial reporting issues. TheCommittee is also responsible for recommending the appointment of the Company's external auditors.

MNP LLP is appointed by the directors to audit the consolidated financial statements and report directly to them;their report follows. The external auditors have full and free access to, and meet periodically and separately with,both the Board/Committee and management to discuss their audit findings.

April 21, 2016

(signed) (signed)“Charles Ku” “Giovanni Susin”President and Chief Executive Officer Chief Financial Officer

Independent Auditors’ Report

To the Shareholders of RSI International Systems Inc.:

We have audited the accompanying consolidated financial statements of RSI International Systems Inc., and itssubsidiary, (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2015and 2014, and the consolidated statements of operations and comprehensive loss, changes in shareholders’ equityand cash flows for the years then ended, and a summary of significant accounting policies and other explanatoryinformation.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements inaccordance with International Financial Reporting Standards, and for such internal control as management determinesis necessary to enable the preparation of consolidated financial statements that are free from material misstatement,whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. Weconducted our audits in accordance with Canadian generally accepted auditing standards. Those standards requirethat we comply with ethical requirements and plan and perform an audit to obtain reasonable assurance about whetherthe consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in theconsolidated financial statements. The procedures selected depend on the auditors’ judgment, including theassessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation andfair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Anaudit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of RSI

International Systems Inc. and its subsidiary as at December 31, 2015 and 2014, and its financial performance and its

cash flows for the years the ended in accordance with International Financial Reporting Standards.

April 21, 2016

Vancouver, BC Chartered Professional Accountants

RSI INTERNATIONAL SYSTEMS INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(in Canadian dollars)

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NotesDecember 31,

2015December 31,

2014

ASSETS

CurrentCash & Cash Equivalents $ 1,145,427 $ 1,269,787Accounts Receivable, net of allowance 4 230,649 202,284GST Receivable 4,218 -Prepaid Expenses 5 77,986 21,584

1,458,280 1,493,655

Long-Term Accounts Receivable - 2,625Long-Term Prepaid Expenses 5 34,938 45,369Equipment 6 44,911 16,944Deferred Development Costs 7 393,065 245,366

$ 1,931,194 $ 1,803,959

LIABILITIES AND SHAREHOLDERS' EQUITY

CurrentAccounts Payable & Accrued Liabilities $ 468,380 $ 373,826GST Payable - 17,424Current Portion of Deferred Revenue 8 369,996 222,812

838,376 614,062

Deferred Revenue 8 - 26,509

838,376 640,571

Shareholders' EquityShare Capital 9 5,177,009 4,944,564Shares to be Issued 9 - 67,500Share Subscription Receivable 9 - (10,492)Contributed Surplus 300,582 338,854Deficit (4,384,773) (4,177,038)

1,092,818 1,163,388

$ 1,931,194 $ 1,803,959

The accompanying notes are an integral part of these consolidated financial statements.

RSI INTERNATIONAL SYSTEMS INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014(in Canadian dollars)

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Notes 2015 2014

REVENUES $ 4,492,422 $ 3,327,328

COST OF SALES 676,328 453,860

GROSS PROFIT 3,816,094 2,873,468

EXPENSESAmortization of Equipment 6 15,669 6,900Amortization of Deferred Development Costs 7 95,152 395,130Amortization of Intangible Assets - 20,900Bad Debt 4 16,159 51,250Business Development and Travel 237,172 227,873Consulting Fees - 42,000Filing and Transfer Agent Fees 15,467 17,354Foreign Exchange (Gain) Loss (488,679) (43,858)Internet and Networking 63,667 76,547Interests and Bank Charges 54,388 44,170Marketing 237,537 129,289Office and Miscellaneous 81,764 19,772Professional Fees 178,870 135,626Rent and Utilities 165,571 139,302Salaries and Benefits 3,331,140 2,554,039Software Licenses 19,952 39,455Stock-Based Compensation - 124,500

4,023,829 3,980,249

LOSS BEFORE OTHER INCOME $ (207,735) $ (1,106,781)

Other income - 53,793

NET AND COMPREHENSIVE LOSS FOR THE YEAR (207,735) (1,052.988)

Loss Per Share - Basic and Diluted $ (0.01) $ (0.05)

Weighted average number of shares outstanding – basic and diluted 31,021,371 22,293,668

The accompanying notes are an integral part of these consolidated financial statements.

RSI INTERNATIONAL SYSTEMS INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(in Canadian dollars, except share number)

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Issued Common SharesAllotted Common

Shares

Notes NumberAmount

ReceivedAmount

Receivable

SubscriptionAmount

Received Number AmountShares to be

IssuedContributed

Surplus Deficit Total Equity$ $ $ $ $ $ $ $

BALANCE, DECEMBER 31, 2013 17,804,627 3,427,049 (84,000) - 250,000 5,572 - 246,282 (3,124,050) 470,853

Shares issued for acquisition payment 250,000 37,500 - - (250,000) (5,572) - (31,928) - -Collection of amount receivable for privateplacement 9 - - 84,000 - - - - - - 84,000Shares to be issued 9 - - - - - - 67,500 - - 67,500Share-based payment 9 - - - - - - - 124,500 - 124,500Shares issued for private placements 9 12,499,999 1,500,000 (10,492) - - - - - - 1,489,508Share issuance costs 9 - (19,985) - - - - - - - (19,985)Net and comprehensive loss for the year - - - - - - - - (1,052,988) (1,052,988)

BALANCE, DECEMBER 31, 2014 30,554,626 4,944,564 (10,492) - - - 67,500 338,854 (4,177,038) 1,163,388Cancellation of share subscription receivable - (1,202) - - - - - - - (1,202)Collection of amount receivable for privateplacement 9 - - 10,492 - - - - - - 10,492Shares issued upon exercise of options 9 450,000 51,000 - - - - - - - 51,000Fair value of options exercised - 38,272 - - - - - (38,272) -Shares issued upon exercise of warrants 9 962,500 144,375 - - - - (67,500) - - 76,875Net and comprehensive income for the year - - - - - - - - (207,735) (207,735)

BALANCE, DECEMBER 31, 2015 31,967,126 5,177,009 - - - - - 300,582 (4,384,773) 1,092,818

The accompanying notes are an integral part of consolidated financial statements.

RSI INTERNATIONAL SYSTEMS INC.CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014(in Canadian dollars)

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Notes 2015 2014

CASH FLOWS FROM OPERATING ACTIVITIES

Net Loss for the Year $ (207,735) $ (1,052,988)

Items not Affecting Cash:

Amortization of Equipment 15,669 6,900

Amortization of Deferred Development Costs 95,152 395,130

Amortization of Intangible Assets - 20,900

Bad Debt 16,159 51,251

Stock-Based Compensation - 124,500

(80,755) (454,309)

Changes in Non-Cash Working Capital Items:

Increase in Accounts Receivable (44,524) (20,069)

Increase in Prepaid Expenses (43,346) (24,270)

Increase in Accounts Payable and Accrued Liabilities 94,554 179,014

Decrease in GST Payable (21,642) (30,069)

Increase in Deferred Revenue 120,675 17,659

Net Cash Provided by (Used in) Operating Activities 24,962 (332,044)

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of Equipment (43,636) (15,645)

Deferred Development Costs (242,851) (85,590)

Net Cash Used in Investing Activities (286,487) (101,235)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of Loan Payable and Operating Line of Credit - (97,367)

Issuance of Common Shares, net of shares issuance costs - 1,621,023

Exercise of Options 51,000 -

Exercise of Warrants 76,875 -

Subscription to Private Placement, net of cancellation 9,290 -

Net Cash Provided by Financing Activities 137,165 1,523,656

Change in Cash during the Year (124,360) 1,090,377

Cash and Cash Equivalents, Beginning of Year 1,269,787 179,410

Cash and Cash Equivalents, End of Year $ 1,145,427 $ 1,269,787

Supplemental Cash flow information:Cash paid during the year for interest $ - $ 8,683

The accompanying notes are an integral part of consolidated financial statements.

RSI INTERNATIONAL SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2015 AND 2014(in Canadian dollars)

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1. NATURE OF OPERATIONS

RSI International Systems Inc. (“RSI” or the “Company”) is a publicly listed company incorporatedunder the laws of British Columbia, Canada. The address of the Company’s head and registered officeis 402 – 134 Abbott Street, Vancouver, BC V6B 2K4. The consolidated financial statements of theCompany as at and for the year ended December 31, 2015 include the Company and its subsidiary(together referred to as the “Group”). The Group is in the business of providing an integrated web-based real-time reservation and property management system to the hotel and resort industries.

These consolidated financial statements were approved and authorized for issue by the Board ofDirectors on April 21, 2016.

These financial statements have been prepared using International Financial Reporting Standardsapplicable to a going concern, which assumes that the Company will be able to realize its assets anddischarge its liabilities and commitments in the normal course of operations for the foreseeable future.

Since 2012, the Company has focused on product development and enhancement, rebranding its brandand website and in 2013, 2014 and 2015, on sales and marketing activities. These activities have beenfunded by a combination of revenue generated from the sale of the Company’s products and services,equity financings, line of credits and short-term loans. The Company’s expenses have exceeded itsrevenue for the past two years, and has incurred a net loss for the year ended December 31, 2015 of$207,735 (2014 - $1,052,988) and an accumulated deficit as of December 31, 2015 of $4,384,773(2014 – $4,177,038).

Management’s current strategy is to focus on gaining worldwide market share of the hotel lodgingindustry, at the same time to exercise careful cost control to sustain operations in the near term.Management recognizes the Company’s need to expand its cash reserves in the coming year if itintends to adhere to its sales and marketing plans and has evaluated its potential sources of funds,including: increased revenue from sale of its products and services and possible equity financingoptions. Although Management intends to assess and act on these options through the course of theyear, there can be no assurance that the steps Management takes will be successful.

2. BASIS OF PRESENTATION

Statement of Compliance

The consolidated financial statements of the Company comply with International Financial ReportingStandards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Basis of Preparation

These consolidated financial statements are presented in Canadian dollars, which is the Company’sfunctional and reporting currency.


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2. BASIS OF PRESENTATION

Basis of Preparation (continued)

These consolidated financial statements have been prepared on a historical cost basis except forcertain financial instruments which are measured at their fair value as explained in the accountingpolicies set out below. In addition, these financial statements have been prepared using the accrualbasis of accounting except cash flow information.

The accounting policies set out below have been applied consistently to all periods presented in theconsolidated financial statements.

3. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-ownedsubsidiary, Veratta Technologies (2011) Inc. All significant inter-company balances and transactionshave been eliminated upon consolidation.

Significant Accounting Judgments and Estimates

The preparation of the consolidated financial statements in conformity with IFRS requiresmanagement to make judgments and estimates and form assumptions that affect the reported amountof assets and liabilities at the date of the consolidated financial statements and reported amounts ofrevenues and expenses during the reporting period. On an ongoing basis, management evaluates itsjudgments and estimates in relation to assets, liabilities, revenues and expenses. Management useshistorical experience and various other factors it believes to be reasonable under the givencircumstances as the basis for its judgments and estimates. Actual outcomes may differ from theseestimates under different assumptions and conditions.

Significant assumptions about the future and other sources of estimation uncertainty that managementhas made at the statement of the financial position date, that could result in a material adjustment tothe carrying amounts of assets and liabilities, in the event that actual results differ from assumptionsmade, relate to, but are not limited to, the following:

Estimates and assumptions

• Allowance for doubtful accountsThe Company extends unsecured credit to its customers in the ordinary course of business butmitigates the associated risks by performing credit checks and actively pursuing past due accounts.An allowance for doubtful accounts is estimated and recorded based on management’s assessment ofcredit history with the customers and current relationships with them.


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3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant Accounting Judgments and Estimates (continued)

• Impairment of non-financial assetsThe Company assesses the carrying value of non-financial assets, including equipment, deferreddevelopment cost and intangible assets at each reporting date to determine whether there are anyindicators that the carrying amounts of the assets may be impaired. The Company follows IFRS 36 todetermine if there are impairment indicators. This determination requires significant judgement. TheCompany tests annually whether deferred development cost not ready to use has suffered impairment,in accordance with the accounting policy stated in Note 3. The recoverable amounts of cash-generating units have been determined based on the value-in-use calculations.

• Share-based paymentsShare-based payments are valued using the Black-Scholes option pricing model at the date of grantand expensed in profit or loss over vesting period of each award. The Black-Scholes option pricingmodel utilizes subjective assumptions such as expected price volatility and expected life of the option.Changes in these input assumptions can significantly affect the fair value estimate.

• Deferred taxesThe Company recognizes the deferred tax benefit related to deferred tax assets to the extent recoveryis probable. Assessing the recoverability of deferred tax assets requires management to makesignificant estimates of future taxable profit. In addition, future changes in tax laws could limit theability of the Company to obtain tax deductions in the future periods. To the extent that future cashflows and taxable income differ significantly from estimates, the ability of the Company to realize thenet deferred tax assets recorded at the reporting date could be impacted.

Judgments

The critical judgments that the Company’s management has made in the process of applying theCompany’s accounting policies from those involving estimations that have the most significant effecton the amounts recognized in the Company’s consolidated financial statements are as follows:

• Going concernThe assessment of the Company’s ability to execute its strategy and finance the operations throughachieving positive cash flow from operations or by obtaining additional funding through the issuanceof share capital involves judgment. Management monitors future cash requirements to assess theCompany’s ability to realize assets and discharge its liabilities in the normal course of operations.

• Capitalization of deferred development costsThe application of the Company’s accounting policy for capitalization of deferred development costs requiresjudgment in determining which development expenditures are recognized as intangible assets and applying thepolicy consistently. In making this determination, the Company considers the degree to which the developmentexpenditure can be associated with developing new proprietary products.


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Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid instruments that are readily convertibleto cash with a maturity of three months or less when initially purchased. As at December 31, 2015and 2014, there were no cash equivalents.

Foreign Currency Transactions

The Company’s and its subsidiary’s functional currency and reporting currency is the Canadiandollars and transactions denominated in foreign currencies are translated into Canadian dollars at theexchange rates prevailing at the transaction dates or at the average exchange rate for the month inwhich the transaction occurs or the revenue is recognized. At each month-end, monetary assets andliabilities are re-valued at the month-end exchange rates. Exchange gains and losses on translationsare included in operations.

Equipment

Equipment is stated at cost less accumulated amortization.• Amortization of office equipment is calculated on a straight-line basis over 36 months;• Amortization of computer equipment and leasehold improvements is calculated on a straight-line

basis over three years and the term of the lease agreement, respectively;• Amortization of computer software is calculated based on a declining balance of 100%.

Impairment of Non-Financial Assets

Intangible assets and deferred development costs not ready to use are not subject to amortization andare tested annually for impairment. Assets that are subject to amortization are reviewed forimpairment whenever events or changes in circumstances indicate that the carrying amount may notbe recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amountexceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value lesscosts of disposal and value in use. For the purposes of assessing impairment, assets are grouped at thelowest levels for which there are largely independent cash inflows (cash-generating units). Priorimpairments of non-financial assets (other than goodwill) are reviewed for possible reversal at eachreporting date.

Revenue Recognition

The Company derives its revenue primarily from monthly subscription fees for access to its web-based real time reservation and property management system and its support services. It also generatesrevenue from provision of professional services such as set up services, initial interface, and systemsconfiguration.

Revenue from the rendering of services is recognized when the following criteria are met:• The amount of revenue can be measured reliably• The receipt of economic benefits is probable; and• Costs incurred and to be incurred can be measured reliably


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Revenue Recognition (continued)

Subscription-based services:Subscription fees, consisting primarily of monthly charges for access to the Company’s web basedreservation and property management system and customer support services, are recognized asrevenue over the associated subscription period. Where applicable, usage fees above a base minimumfees based on actual usage, are recognized as services are delivered. Subscription revenue receivedin advance of the delivery of services is included in deferred revenue.

Professional services:Revenue associated with professional services such as initial interface, systems configuration ortraining are recognized upon delivery of services.

Commission revenue:Commission revenue is recognized on a net basis based on actual usage.

Multiple component arrangements:When a single sales transaction requires the delivery of more than one product or service (multiplecomponents), the revenue recognition criteria are applied to the separately identifiable components.A component is considered to be separately identifiable if the product or service delivered has stand-alone value to the customer and the fair value associated with the product or service can be measuredreliably. The total contract consideration for these units is measured and allocated amongst theaccounting units based upon the fair value of each component in relation to the fair value of thearrangement as a whole. Otherwise, the entire arrangement is treated as one unit of accounting andrevenue is deferred and recognized ratably over the remaining term of the contract, commencing whenall elements are delivered.

Share-Based Payments

The Company grants stock options to buy common shares of the Company to directors, officers,employees and consultants. The Board of Directors grants such options with vesting periodsdetermined at the sole discretion of the Board and at prices reflecting the share price on the date theoptions were granted. An individual is classified as an employee when the individual is an employeefor legal or tax purposes (“direct employee”) or provides services similar to those performed by adirect employee, including directors of the Company.

The fair value is measured at the grant date and recognized, together with a corresponding increase inshare option reserve in equity, over the period during which the options vest. The fair value of theoptions granted is measured using the Black-Scholes option pricing model, taking into account theterms and conditions upon which the options are granted. The cumulative expense recognized at eachreporting date until the vesting date reflects the extent to which the vesting period has expired and theCompany’s best estimate of the number of options that will ultimately vest. The income statementexpense for a period represents the movement in cumulative expense recognized as at the beginningand end of that period.


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Income Taxes

Income tax expense comprises current and deferred tax. Income tax expense is recognized in theconsolidated statement of comprehensive loss except to the extent that it relates to items recognizeddirectly in equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted orsubstantively enacted at the reporting date, and any adjustment to tax payable in respect of previousyears.

Deferred tax is recognized using the liability method, providing for temporary differences betweenthe carrying amounts of assets and liabilities for financial reporting purposes and the amounts usedfor taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilitiesin a transaction that is not a business combination. In addition, deferred tax is not recognized fortaxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measuredat the tax rates that are expected to be applied to temporary differences when they reverse, based onthe laws that have been enacted or substantively enacted by the reporting date. Deferred tax assetsand liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxeslevied by the same tax authority on the same taxable entity, or on different tax entities, but they intendto settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realizedsimultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will beavailable against which the temporary difference can be utilized. Deferred tax assets are reviewed ateach reporting date and are reduced to the extent that it is no longer probable that the related taxbenefit will be realized.

Earnings (Loss) Per Share

The Company presents basic and diluted earnings (loss) per share data for its common shares,calculated by dividing the earnings (loss) attributable to common shareholders of the Company by theweighted average number of common shares outstanding during the year. Diluted earnings (loss) pershare does not adjust the loss attributable to common shareholders or the weighted average numberof common shares outstanding when the effect is anti-dilutive. Options and warrants are dilutive whenthey would result in the issue of common shares for less than the average market price of commonshares during the period minus the issue price. For the years ended December 31, 2015 and 2014 alloptions are anti-dilutive.


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Capital Disclosure

The Company’s primary objective when managing capital is to maintain sufficient resources and raisefunding to support current and long-term operating needs. The ability to continue as a going concernis essential to the Company’s goal of providing returns and shareholders and other stakeholders. Thecapital structure of the Company consists of shareholders’ equity. The Company manages its capitalstructure and makes adjustments to it, based on the level of funds available to the Company to manageits operations. The Company balances its overall capital through new share issuances or byundertaking other activities as deemed appropriate in the circumstances. The Company is not subjectto externally imposed capital requirements. There have been no significant changes in the Company’sapproach to capital management during the year.

Business Combinations and Goodwill

Acquisitions of businesses are accounted for using the acquisition method. The considerationtransferred is measured as the aggregate of the acquisition date fair values of assets given, liabilitiesincurred or assumed, and equity instruments issued by the Company in exchange for control of theacquire. Any transaction costs attributable to the business combination are recognized in profit or lossas incurred. Any contingent consideration to be transferred will be recognized at fair value at theacquisition date. Subsequent changes in the fair value of the contingent consideration which is deemedto be an asset or liability, will be recognized either in profit or loss or as a change to othercomprehensive income. If the contingent consideration is classified as equity, it will not beremeasured. Subsequent settlement is accounted for within equity.

Any goodwill arising on acquisition is recognized as an asset and initially measured at cost, being theexcess of the cost of the acquisition over the Company’s interest in the net fair value of the identifiableassets, liabilities and contingent liabilities recognized. If the Company’s interest in the net fair valueof the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of theacquisition, a gain is recognized immediately in the net earnings in the period in which the acquisitionoccurred.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Forthe purpose of annual impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Company’s cash-generating units that are expected to benefitfrom the combination, irrespective of whether other assets or liabilities of the acquire are assigned tothose units.

Intangible Assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangibleassets acquired in a business combination is its fair value as at the date of acquisition. Following initialrecognition, intangible assets are carried at cost less any accumulated amortization and accumulatedimpairment losses, if any. The useful lives of intangible assets are assessed as either finite orindefinite.


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Intangible Assets (continued)

Intangible assets with finite lives are amortized over the useful economic life and assessed forimpairment whenever there is an indication that the intangible asset may be impaired. Theamortization period and the amortization method for an intangible asset with a finite useful life arereviewed at least at the end of each reporting period. Changes in the expected useful life of theexpected pattern of consumption of future economic benefits embodied in the asset is accounted forby changing the amortization period or method, as appropriate, and are treated as changes inaccounting estimates. Intangible assets with indefinite useful lives are not amortized, but are testedfor impairment annually, either individually or at the cash-generating unit level. The assessment ofindefinite life is reviewed annually to determine whether the indefinite life continues to besupportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from de-recognition of an intangible asset are measured as the differencebetween the net disposal proceeds and the carrying amount of the asset and are recognized in theincome statement when the asset is derecognized.

Deferred Development Costs

The Company carries on various research and development activities to develop new proprietaryproducts. Net research costs are expensed in the periods in which they are incurred. Developmentcosts that meet all of the criteria to be recognized as an intangible asset, including reasonableexpectation regarding future economic benefits, are recognized as assets and recorded in deferreddevelopment costs. Following initial recognition, the deferred development costs are carried at costless any accumulated amortization and accumulated impairment losses. Amortization of the assetsbegins when development is complete and the asset is available for use. The deferred developmentcosts are being amortized on straight line method over the period of expected future benefit, which isestimated to be 3 to 5 years. During the period of development, the asset is tested for impairmentannually.

Financial Instruments

Financial Assets

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, long-term receivables, bank operating line of credit, accounts payable and accrued liabilities, acquisitionpayable, and loan payable. Cash and cash equivalents and bank operating line of credit are classifiedas fair value through profit or loss and recorded at fair value. Accounts receivable and long-termreceivables are classified as loans and receivables and are measured at amortized cost. Accountspayable and accrued liabilities, acquisition payable and loan payable are classified as other financialliabilities, which are measured at amortized cost. The Company classifies its financial assets into oneof the following categories, depending on the purpose for which the asset was acquired. TheCompany’s accounting policy for each category is as follows:


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Financial Instruments (continued)

Financial Assets (continued)

Fair value through profit or loss – this category comprises derivatives, or assets acquired or incurredprincipally for the purpose of selling or repurchasing it in the near term. They are carried in thestatement of financial position at fair value with changes in fair value recognized in the statement ofoperations.

Loans and receivables – these assets are non-derivative financial assets with fixed or determinablepayment that are not quoted in an active market. They are carried at cost less any provision forimpairment. Individually significant receivables are considered for impairment when they are pastdue or when other objective evidence is received that a specific counter party will default.

Held-to-maturity investments – these assets are non-derivative financial assets with fixed ordeterminable payments and fixed maturities that the Company’s management has the positiveintention and ability to hold to maturity. These assets are measured at amortized cost using theeffective interest method. If there is objective evidence that the investment is impaired, determinedby reference to external credit ratings and other relevant indicators, the financial asset is measured atthe present value of estimated future cash flows. Any changes to the carrying amount of theinvestment, including impairment losses, are recognized in the statement of operations.

Available-for-sale – non-derivative financial assets not included in the above categories are classifiedas available-for-sale. They are carried at fair value with changes in fair value recognized directly inequity. Where a decline in the fair value of an available-for-sale financial asset constitutes objectiveevidence of impairment, the amount of the loss is removed from equity and recognized in thestatements of operations and comprehensive loss.

All financial assets, except those at fair value through profit or loss, are subject to review for whetherthere is any objective evidence of impairment at least at each reporting date. Different criteria areapplied for each category of financial assets described above to determine impairment. If there isobjective evidence that an impairment loss has been incurred, the amount of impairment loss ismeasured as the difference between the assets’ carrying amount and the present value of estimatedfuture cash flow (excluding future credit losses that have not been incurred) discounted at the originaleffective interest rate. The amount of loss is recognized in the statement of operations. The previouslyrecognized impairment loss is reversed in a subsequent period if the amount of impairment lossdecreases and the decrease is related to an event occurring after the initial recognition of theimpairment loss. However, the reversal will not result in the carrying amount of the financial assetthat exceeds the amortized cost would have been had the impairment not been recognized at the dateof impairment reversal. The amount of impairment reversal is recognized in the statements ofoperations and comprehensive loss.


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Financial Instruments (continued)

Financial Liabilities

The Company classifies its financial liabilities into one of two categories, at initial recognition. TheCompany’s accounting policy for each category is as follows:

Fair value through profit or loss – this category comprises derivatives or liabilities acquired orincurred principally for the purpose of selling or repurchasing it in the near term. They are carried inthe statement of financial position at fair value with changes in the fair value recognized in thestatement of operations.

Other financial liabilities – this category includes bank operating line of credit, accounts payable andaccrued liabilities, acquisition payable, and loan payable, all of which are recognized at amortizedcost.

Change in Accounting Policies

The following new standards, interpretations, amendments and improvements to existing standardsissued by the IASB or International Financial Reporting Interpretations Committee (“IFRIC”) wereadopted as of January 1, 2015 without any material impact to the Company’s consolidated financialstatements:

IFRS 3 – Business CombinationsThe amendments to IFRS 3, issued in December 2013, clarify the accounting for contingentconsideration in a business combination. At each reporting period, an entity measures contingentconsideration classified as an asset or a financial liability at fair value, with changes in fair valuerecognized in profit or loss. Additional amendments to IFRS 3, issued in December 2013, clarify thatIFRS 3 does not apply to the accounting for the formation of all types of joint arrangements in thefinancial statements of the joint arrangement itself.

IFRS 13 – Fair Value MeasurementThe amendments to IFRS 13, issued in December 2013, clarify that the portfolio exception applies toall contracts within the scope of IFRS 9 Financial instruments or IAS 39 Financial instruments:Recognition and measurement, regardless of whether they meet the definitions of financial assets orfinancial liabilities in IAS 32 Financial instruments: Presentation.

IAS 16 Property, plant and equipment and IAS 38 Intangible assetsThe amendments to IAS 16 and IAS 38, issued in December 2013, clarify how an entity calculatesthe gross carrying amount and accumulated depreciation when a revaluation is performed.


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Change in Accounting Policies (continued)

IAS 24 – Related Party DisclosuresThe amendments to IAS 24, issued in December 2013, clarify that a management entity, or anymember of a group of which it is a part, that provides key management services to a reporting entity,or its parent, is a related party of the reporting entity. The amendments also require an entity todisclose amounts incurred for key management personnel services provided by a separatemanagement entity. This replaces the more detailed disclosure by category required for other keymanagement personnel compensation.

Accounting Standards Issued but Not Yet Effective

The following standards and interpretations have not been in effect as they will only be applied forthe first time in future periods. They may result in consequential changes to the accounting policiesand other note disclosures. The Company has not yet assessed the impacts of the standards ordetermined whether it will adopt the standards early.

IFRS 9 Financial instrumentsIFRS 9 was issued in November 2009 and subsequently amended as part of an ongoing project toreplace IAS 39 Financial instruments: Recognition and measurement. The standard requires theclassification of financial assets into two measurement categories based on the entity’s business modelfor managing its financial instruments and the contractual cash flow characteristics of the instrument.The two categories are those measured at fair value and those measured at amortized cost. Theclassification and measurement of financial liabilities is primarily unchanged from IAS 39. However,for financial liabilities measured at fair value, changes in the fair value attributable to changes in anentity’s “own credit risk” is now recognized in other comprehensive income instead of in profit orloss. This new standard will also impact disclosures provided under IFRS 7 Financial instruments:disclosures.

In November 2013, the IASB amended IFRS 9 for the significant changes to hedge accounting. Inaddition, an entity can now apply the “own credit requirement” in isolation without the need to changeany other accounting for financial instruments. The standard was initially effective for annual periodsbeginning on or after January 1, 2013, but the complete version of IFRS 9, issued in July 2014, movedthe mandatory effective date to January 1, 2018. The Company does not expect this amendment tohave a material impact on its consolidated financial statements.

IFRS 15 Revenue from Contracts with CustomersIn May 2014, the IASB issued IFRS 15, which covers principles for reporting about the nature,amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Thecore principle of the new standard is that an entity recognizes revenue to represent the transfer ofgoods or services to customers in an amount that reflects the consideration to which the entity expectsto be entitled in exchange for those goods or services. The standard also provides a model for therecognition and measurement of gains or losses from sale of non-financial assets.


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Accounting Standards Issued but Not Yet Effective (continued)

IFRS 15 is effective for annual periods beginning on or after January 1, 2018 with earlier adoptionpermitted. The standard permits the use of either full or modified retrospective application. This newaccounting guidance will also result in enhanced disclosures about revenue. The Company does notexpect this amendment to have a material impact on its consolidated financial statements.

4. ACCOUNTS RECEIVABLE

The aging analysis of accounts receivable is as follows:

Total Current 31 - 60 Days 60 - 90 Days > 90 Days

December 31, 2015 $ 230,649 $ 93,763 $ 58,182 $ 37,238 $ 41,466

December 31, 2014 $ 202,284 $ 36,499 $ 124,108 $ 6,414 $ 35,263

As at December 31, 2015, accounts receivable of an initial value of $17,079 (December 31, 2014 -$26,750) were impaired and fully provided for allowance. See below for the movements in theprovision for impairment of receivables.

$

As of December 31, 2013 262

Charge for the year 51,251

Utilized (24,763)

As of December 31, 2014 26,750

Charge for the period 16,159

Utilized (25,830)

As of December 31, 2015 17,079

5. PREPAID EXPENSES AND LONG-TERM PREPAID EXPENSES

Prepaid expense balances represent trade-show deposits and advances paid to suppliers for servicesto be rendered in the fiscal years 2015 and 2014.

Long-term prepaid expense represents rental deposits paid to the landlords in relation to the officelease agreements for its premises, including deposits related to sub-leased premises. The deposits areclassified as long-term assets since the leases mature beyond December 31, 2016.


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6. EQUIPMENT

CostComputerEquipment

ComputerSoftware

OfficeEquipment

LeaseholdImprovements Total

December 31, 2013 $ 131,486 $ 64,286 $ 12,123 $ 5,415 $ 213,310Additions 6,950 - 8,695 - 15,645December 31, 2014 138,436 64,286 20,818 5,415 228,955Additions 27,544 - 16,092 - 43,636December 31, 2015 $ 165,980 $ 64,286 $ 36,910 $ 5,415 $ 272,591

AccumulatedAmortization

ComputerEquipment

ComputerSoftware

OfficeEquipment


December 31, 2013 $ 130,745 $ 64,286 $ 4,665 $ 5,415 $ 205,111Additions 2,095 - 4,805 - 6,900December 31, 2014 132,840 64,286 9,470 5,415 212,011Additions 5,480 - 10,189 - 15,669December 31, 2015 $ 138,320 $ 64,286 $ 19,659 $ 5,415 $ 227,680

Carrying AmountsComputerEquipment

ComputerSoftware

OfficeEquipment


December 31, 2014 $ 5,596 $ - $ 11,348 $ - $ 16,944December 31, 2015 $ 27,660 $ - $ 17,251 $ - $ 44,911


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7. DEFERRED DEVELOPMENT COSTS

During 2014 the Company wrote off $168,891 of Insight Web project due to a change in technology andthe direction of development which rendered a portion of the previous work to be obsolete. Developmentcosts related to X-Key and PCI compliance were also written off in 2014 as the technology will not beutilized in future versions of RoomKey PMS. In Q2 2015, the Company commenced work on a newproject, RoomKey Web, to provide a more flexible platform for integration with partner products andcustomer reporting.

Vending PCI Roomkey

Cost Machine Xkey Compliance Insight Insight Web Loyalty Web Total

December 31, 2013 $ 75,900 $ 423,586 $ 73,839 $ 220,910 $ 221,484 $ 9,000 $ - $ 1,024,719

Additions - - - - 85,590 - - 85,590December 31, 2014 75,900 423,586 73,839 220,910 307,074 9,000 - 1,110,309

Additions - - - - - - 242,851 242,851

December 31, 2015 $ 75,900 $ 423,586 $ 73,839 $ 220,910 $ 307,074 $ 9,000 $ 242,851 $ 1,353,160

Accumulated Vending PCI Roomkey

Amortization Machine Xkey Compliance Insight Insight Web Loyalty Web Total

December 31, 2013 $ 75,900 $ 262,797 $ 57,479 $ 73,637 $ - $ - $ - $ 469,813

Additions - 35,681 4,079 49,090 - - - 88,850

Disposals - 125,108 12,281 - 168,891 - - 306,280

December 31, 2014 75,900 423,586 73,839 122,727 168,891 - - 864,943

Additions - - - 49,091 46,061 - - 95,152

December 31, 2015 $ 75,900 $ 423,586 $ 73,839 $ 171,818 $ 214,952 $ - $ - $ 960,095

Vending PCI Roomkey

Carrying Amounts Machine Xkey Compliance Insight Insight Web Loyalty Web Total

December 31, 2014 $ - $ - $ - $ 98,183 $ 138,183 $ 9,000 $ - $ 245,366

December 31, 2015 $ - $ - $ - $ 49,092 $ 92,122 $ 9,000 $ 242,851 $ 393,065


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8. DEFERRED REVENUE AND CUSTOMER ADVANCES

Deferred revenue consists of pre-billed services, license fees, subscription fees and web design fees asfollows:

December 31,2015

December 31,2014

Deferred revenue $ 369,996 $ 249,321

Current portion 369,996 (222,812)

Long-term portion $ - $ 26,509

At December 31, 2015, 83% (December 31, 2014 – 81%) of deferred revenue was denominated in USdollars, with the remaining 17% (December 31, 2014 – 19%) in Canadian dollars.

Deferred revenues are recognized in revenue when the service is provided.

9. SHARE CAPITAL

Authorized: Unlimited common shares without par value

Escrow Shares

As at December 31, 2015, the Company has no escrow shares.

Private Placement

On October 24, 2014, The Company announced the completion of its private placement, issuing12,499,999 units at $0.12 per unit for a total gross proceeds of $1,500,000, net of $19,985 issuance costs.Each unit is comprised of one common share and one-half of a share purchase warrant, with a wholewarrant entitling the holder to purchase an additional common share at a price of $0.25 for a period oftwo years, expiring on October 21, 2016.

Stock Options

There were no options granted in the year ended December 31, 2015.

On May 27, 2014, the Board of Directors granted 1,000,000 stock options to the directors of theCompany at an exercise price of $0.12 per share with a term of 5 years and 100% vested on grant date.In addition, on the same day, the Board of Directors also granted 200,000 stock options to the membersof the Advisory Board of the Company at the same terms as the options granted to directors.

On June 20, 2014, the Board of Directors granted 150,000 stock options to the newly appointed directorof the Company at an exercise price of $0.12 per share with a term of 5 years and 100% vested on grantdate

The fair value of the stock options granted during the year was calculated as of the date of the grantusing the Black-Scholes option pricing model with the following assumptions:


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9. SHARE CAPITAL (continued)

Stock Options (continued)

During the year, stock-based compensation expense of $nil (2014 - $124,500) was recognized. As atDecember 31, 2015 and 2014, all options granted were vested.

A summary of the Company’s stock options as at December 31, 2015 and 2014 is as follows:

WeightedNumber of Average

Shares Exercise Price

Options outstanding as at December 31, 2013 850,000 $ 0.10

Granted 1,350,000 $ 0.12

Options outstanding as at December 31, 2014 2,200,000 $ 0.11

Exercised (450,000) $ 0.11

Options outstanding as at December 31, 2015 1,750,000 $ 0.11

The weighted average remaining contractual life of the outstanding stock options at December 31, 2015is 2.54 years (December 31, 2014 – 3.58 years).

Date Issued Number of OptionsExercise

PriceExpiryDate

WeightedAverage

RemainingContractual Life

(in Years)

March 27, 2012 700,000 $ 0.10 March 27, 2017 1.24May 27, 2014 1,050,000 $ 0.12 May 27, 2019 3.41

1,750,000 $ 0.11 2.54

May 27, 2014

Grant

June 20, 2014

Grant

Risk-free interest rate 1.56% 1.57%

Expected life of options in years 5 years 5 years

Expected volatility 109% 109%

Expected dividend yield 0% 0%

Estimated forfeiture rate 0% 0%


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9. SHARE CAPITAL (continued)

Warrants

A summary of the Company’s warrants as at December 31, 2015 and 2014 are as follows:

Number ofShares

WeightedAverage

Exercise PriceWarrants outstanding as at December 31, 2013 1,250,000 $ 0.15

Exercised *(450,000) $ 0.15

Issued October 21, 2014 6,250,000 $ 0.25

Warrants outstanding as at December 31, 2014 7,050,000 $ 0.24

Exercised (512,500) $ 0.15

Expired (287,500) $ 0.15

Warrants outstanding as at December 31, 2015 6,250,000 $ 0.25

* Warrants were exercised during 2014 and the shares were issued during the year 2015.

The weighted average remaining contractual life of the outstanding warrants at December 31, 2015 and2014 is as follows:

Date IssuedNumber of

WarrantsExercise

PriceExpiryDate

WeightedAverage

RemainingContractual

Life(in Years)

October 21, 2014 6,250,000 $ 0.25 October 21, 2016 0.75

Warrants outstanding as at December 31, 2015 6,250,000 0.75

RSI INTERNATIONAL SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2015(Unaudited, in Canadian dollars)

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10. RELATED PARTY TRANSACTIONS

Related party transactions not otherwise disclosed in these consolidated financial statements areas follows:

1. Consulting fee of $nil (December 31, 2014 - $42,000) was paid to a director of the Company.

2. Director fee of $12,000 (December 31, 2014 - $12,000) was paid to a director of theCompany.

3. Salaries and employee benefits of $771,345 (December 31, 2014 - $619,360) were paid tokey management personnel.

4. Incentive of $23,637 (2014 - $nil) was paid to the CEO of the Company.

Included in accounts payable and accrued liabilities at December 31, 2015 is $nil (December31, 2014 – $3,513) receivable from directors.

These transactions are in the normal course of the operations on normal commercial terms andconditions and at exchange rates, which is the amount of consideration established and agreedto by the related parties.

11. FINANCIAL INSTRUMENTS

Financial Risk Management

Credit Risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligationand cause the other party to incur a financial loss. The Company’s maximum exposure to creditrisk is in the carrying value of its cash and cash equivalents, accounts receivable and long-termreceivables.

The Company’s exposure to credit risk associated with its accounts receivable are the risk thata customer will be unable to pay amounts due to the Company. Accounts receivable areconsidered for impairment on a case-by-case basis when they are past due or when objectiveevidence is received that a customer will default. The credit risk of accounts receivable isaffected by the customer base being concentrated in the hotel and travel industry. However,this is somewhat offset by the customer base being dispersed across various geographicallocations.

As at December 31, 2015, there is $41,466 (2014 - $35,263) included in accounts receivablethat is greater than 90 days old. However, the credit risk of these receivables is mitigated asthey are generally comprised of sales involving “in-house” financing arrangements wherebythe customer is paying for services over the term of their agreement. In-house financingarrangements are only provided to those customers following a valuation of their creditworthiness.


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11. FINANCIAL INSTRUMENTS (continued)

Currency Risk

Currency risk refers to the risk that the fair value of future cash flows of a financial instrumentwill fluctuate because of changes in foreign exchange rates. During the year ended December31, 2015, 81% (2014 – 62%) of the Company’s annual sales were dominated in US dollars. Asa result, the relative strength of the Canadian dollar against its US counterpart during the yearended December 31, 2014 had an effect on revenue and net income (loss). A 10% variation ofthe US dollar would have an impact of approximately $367,369 (2014 - $210,000) on netincome (loss), on an annual basis. The Company does not hedge its foreign currency exposureand accordingly is at risk for foreign currency price fluctuations.

Interest Rate Risk

The Company is only subject to interest rate risk on its cash balance in the bank and there isunlikely to be a material impact on net income (loss).

Liquidity Risk

Liquidity risk arises through the excess of financial obligations over available financial assetsdue at any point in time.

The financial liabilities on the consolidated statements of financial position consist of accountspayable and accrued liabilities.

A factor that affects the liquidity risk is that significant portions of the Company’s revenue arederived from a small number of customers. During the year ended December 31, 2015, threecustomers (2014 – three customers) accounted for approximately 19% (2014 – 20%) of theCompany’s revenue. For the year ended December 31, 2015, one customer (2014 – twocustomers) accounted for a total of 48% (2014 – 29%) of the Company’s accounts receivable.

The Company’s objective in managing liquidity risk is to maintain sufficient readily availablereserves to meet its liquidity requirements at any point in time. Management has assessedliquidity risk and does not consider it to be significant at this time.

The Company has classified its financial instruments as follows:


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11. FINANCIAL INSTRUMENTS (continued)

2015$

2014$

Financial AssetsFair value through profit and loss, measured at fair value:

Cash and cash equivalents 1,145,427 1,269,787Loans and accounts receivables, recorded at amortized cost:

Accounts receivable 230,649 202,284Long-term receivables - 2,625

Financial LiabilitiesOther financial liabilities, recorded at amortized cost:

Accounts payable and accrued liabilities 468,380 373,826

Fair Value

Financial instruments recorded at fair value are measured using a three-level fair valuehierarchy:

Level 1 Fair value is determined by reference to quoted prices in active markets for identicalassets and liabilities

Level 2 Fair value is determined based on inputs other than quoted prices for which allsignificant inputs are observable, either directly or indirectly

Level 3 Fair value is determined based on inputs that are unobservable and significant to theoverall fair value measurement

The carrying value of cash and cash equivalents, accounts receivable, and accounts payableand accrued liabilities approximates the fair value because of the short-term of theseinstruments.

The Company’s financial instruments that must be recorded at fair value are presented in thefollowing table:

Fair Value ManagementAs at December 31, 2015 Carrying Value Level 1 Level 2 Level 3

Financial AssetsCash and cash equivalents $ 1,145,427 $ 1,145,427 $ - $ -

Fair Value ManagementAs at December 31, 2014 Carrying Value Level 1 Level 2 Level 3

Financial AssetsCash and cash equivalents $ 1,269,787 $ 1,269,787 $ - $ -


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12. SEGMENTED DISCLOSURE

A geographical breakdown of sales to customers is as follows:

Year Ended Year Ended

December 31, 2015 % December 31, 2014 %

Canada $ 820,814 18% $ 811,469 24%

USA 3,114,178 69% 2,076,192 63%

Other 557,430 13% 439,667 13%

Total $ 4,492,422 100% $ 3,327,328 100%

All of the Company’s non-current assets are located in Canada.

13. COMMITMENTS

The Company entered into an office lease agreement for its premises on October 1, 2012. Thelease expires on September 30, 2017. In December 2013, the Company’s landlord exercised arelocation clause in the lease agreement to relocate the Company to another office space.Management deemed the office space to be unsuitable for the Company’s use. Unable toterminate the signed lease agreement, in February 2014 the Company agreed to a much smalleroffice space and renegotiated the terms of the lease agreement. The “new” lease is acontinuation of the existing lease agreement and expires on September 30, 2017. Theremaining minimum lease payments are as follow:

2016 $ 22,7402017 17,055Total $ 39,795

As of October 2014, the Company has entered into a sub-lease agreement for the termNovember 1, 2014 to September 29, 2017. Payments receivable under the lease are as follows:

2016 $ 30,0002017 22,500Total $ 52,500

Due to the above situation, in February 2014, the Company entered into another office leaseagreement for its current premises. The lease expires on March 31, 2019. The minimum leasepayments are as follows:


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13. COMMITMENTS (continued)

2016 $ 83,0392017 83,8882018 84,7382019 21,238Total $ 272,903

In addition, On December 14, 2015, the Company entered into a data service agreement for itsdata centre. The agreement expires on June 14, 2017. The minimum payments are as followsin USD:

2016 $ 186,4442017 93,222Total $ 279,666

14. INCOME TAX

The following table reconciles the expected income taxes expense (recovery) at the Canadianstatutory income tax rates to the amounts recognized in the consolidated statements ofoperations for the years ended December 31, 2015 and 2014:

2015 2014Net income (loss) before tax $ (207,735) $ (1,052,988)

Expected income tax expense (recovery) at 26% (54,011) (273,777)Non-deductible items 1,359 33,955Share issuance costs - (5,196)Change in estimates (25,223) 27,152Change in deferred tax assets not recognized 77,875 217,866Income tax payable $ - $ -

Deferred taxes reflect the tax effects of temporary differences between the carrying amountsof assets and liabilities for financial reporting purposes and their corresponding values for taxpurposes. Deferred tax assets (liabilities) at December 31, 2015 and 2014 are comprised of thefollowing:


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14. INCOME TAX (continued)

2015 2014

Non-capital loss carried forward $ 561,846 $ 513,000Intangible assets 127,473 102,000Equipment 62,745 58,000Financing costs 3,118 4,000Charitable donations 2,171 1,000

757,353 678,000Deferred tax asset not recognized (757,353) (678,000)Net deferred tax asset (liability) $ - $ -

The Company has operating loss carry forward of approximately $2,159,000 (2014:$1,971,000) at December 31, 2015 which may be carried forward to apply against future yearincome tax for Canadian income tax purposes, subject to the final determination by taxationauthorities, expiring in the following years:

Expire years $2025 516,0002026 453,0002027 124,0002028 41,0002030 14,0002032 244,0002033 80,0002034 600,0002035 87,000

2,159,000

The deferred tax assets have not been recognized because at this stage of the Company’sdevelopment, it is not probable that future taxable profit will be available against which theCompany can utilize such deferred tax assets.

15. SUBSEQUENT EVENTS

None.

Documents

RSI INTERNATIONAL SYSTEMS INC. CONSOLIDATED FINANCIAL ...roomkeypms.com/.../2017/01/RSI_FS_Q4-2015-MNP.pdf · rsi international systems inc. consolidated financial statements